What Is the Fine for Not Having Health Insurance?

March 14, 2024by Alex Strautman

If you’re running a business, chances are you’ve come across the Affordable Care Act (ACA) and its employer mandate. Essentially, if your business is big enough to fall into the Applicable Large Employer (ALE) category, you’re required to provide health coverage that’s “affordable” and meets certain standards for your full-time staff (and their families). If not, you could be looking at an ACA penalty.

Calculating your company’s ALE status is something you need to do annually – typically in January. You are an ALE if you had at least 50 full-time employees, including full-time equivalent employees, on average during the prior year. An employee is considered full-time when working 30 hours or more per week.

In addition to being subject to the employer-shared responsibility provisions, an ALE must also comply with the ACA’s employer information reporting provisions.

If you need help determining your ALE status, ask your broker about the “ACA Calculators” section of the CaliforniaChoice website. You can also find an FTE Employee Calculator at HealthCare.gov.

ACA Employer Mandate Penalties

Health insurance must be offered by ALEs to 95% of eligible employees and their children (up to age 26). If your business is subject to the mandate and you don’t offer affordable coverage with minimum value, you are subject to penalties.

“Minimum value” means the plan’s share of the total average cost for covered services is at least 60%. That amount aligns with the Bronze tier level of shared costs for an ACA-compliant health plan.

“Affordable” means the employee’s share of the premium is not more than 9.66% (in 2024) of that employee’s annual household income.

In general, an ALE that does not offer minimum essential coverage or coverage that is affordable to full-time employees (and dependents) is subject to one of two penalties:

  • 4980H(a) Penalty: Employers who fail to provide minimum essential coverage to at least 95% of full-time employees (and their dependents) face a penalty of $2,970 annually/$247.50 per month per employee (minus the first 30).
  • 4980H(b) Penalty: Employers who fail to provide affordable coverage that meets minimum value, or those with one or more employees purchasing subsidized coverage through a state or federal marketplace (like Covered California) face a penalty of $4,460 annually/$371.67 per month per employee (minus the first 30).

To learn more about ACA tax provisions for employers, visit the Internal Revenue Service website.

California Individual Mandate Penalty

Although California does not require employers to offer health coverage to employees (beyond the ACA requirement for ALEs), the state does require most people in California to have health insurance coverage. If your employees do not have Minimum Essential Coverage, they are individually subject to a penalty. The State of California Franchise Tax Board refers to it as a personal health care mandate.

Effective January 1, 2020, California residents must either:

  • Have qualifying health insurance coverage;
  • Obtain an exemption from the requirement to have coverage;
  • Pay a penalty when filing their state tax return.

For tax year 2023 (paid in 2024), the penalty is at $900 per adult and $450 for dependent children under 18. A family of four without insurance for a full year faces a penalty of $2,700.

The state does offer residents several exemptions based on income, affordability, length of gap in coverage, citizenship, and other reasons. Details are available on the Franchise Tax Board web page.

Talk With a Broker

Small businesses have some flexibility when it comes to employee health insurance. If your team has fewer than 50 full-time equivalents (FTEs), offering health benefits isn’t mandatory. But, here’s why you might want to consider it anyway: Benefits aren’t just perks; they’re powerful tools for standing out as an employer. They can improve your employee retention, positively impact your hiring, and increase employee morale. Ready to explore your options? Chat with your employee benefits broker or insurance agent for a tailored quote that fits your business needs.

And if you’re still searching for the right broker, we’ve got you covered.

Shopping for group health insurance?

This guide compiles a list of common questions you may have before you start offering health insurance coverage.